賓士域 (BC) 2008 Q4 法說會逐字稿

Good morning, and welcome to Brunswick Corporation's 2008 fourth quarter earnings conference call. All participants are in a listen-only mode until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time.

I would like to introduce Bruce Byots, Vice President of Corporate and Investor Relations. You may begin.

Good morning, and thank you for joining us.

On the call this morning is Dusty McCoy, Brunswick's Chairman and CEO, and Peter Hamilton, our CFO.

Before we begin with our prepared remarks, I would like to remind everyone that during this call our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For the details on the factors to consider, please refer to the 10-K, latest 10-Q and today's press release. All of these documents are available on our Web site at www.brunswick.com.

I would like to turn the call over to Dusty.

Thank you, Bruce. Good morning, everyone, and thank you for joining us today.

You have seen our results for the 2008 fourth quarter and full year. Our results reflect the difficult year that 2008 was for Brunswick, and our fourth quarter reflected the deteriorating global economic conditions. We have reported a net loss on continuing operations in the quarter $0.75 per share. There are a few significant favorable and unfavorable items in our numbers that we describe more fully in our press release, and will also comment on further in our prepared remarks this morning.

The reality of the global economic conditions place Brunswick in a harsh operating environment. Demand is down, and there are no factors on the near horizon which will improve demand. Therefore, it is important that we execute well around three principles. First, we must maintain strong liquidity. Second, we will take actions necessary to maintain the health of our dealer network. And third, we will continue to position our businesses to emerge from the global economic crisis stronger than before.

We ended the year with $317.5 million of cash on our balance sheet, compared to $331 million at year-end 2007. We ended the year with no borrowings under our recently-amended revolving credit facility, and we did not draw on the facility at any point during the year. Our revolving credit agreement provides an important financial safety net for our operating cash requirements.

Our strong cash performance in 2008 is the result of the execution of a myriad of operating actions throughout our company. Our employees have also significantly contributed to our cash position, through salary actions, furloughs, bonus decisions, and other measures which have directly impacted their pay and benefits. These significant contributions range from workers in our assembly lines to the staff professionals here in the corporate office.

As we think about our dealer network, we start with the understanding that the declining demand in marine products at the retail level significantly impacts dealer health. In declining markets, our dealers require less product on their showroom floors, and we must work in concert with them to manage their declining inventory needs. As a result, we produce and sell at wholesale and to the dealer network fewer boats than are sold at retail. Of course, this dynamic results in significant burdens on earnings as markets are falling. And we saw the impact of these dynamics on our 2008 fourth quarter and full- year results.

Based upon U.S. market data for the first, second and third quarters for 2008, industry fiberglass sterndrive and inboard product retail unit demand fell 28 percent in the first quarter, 36 percent in the second quarter, and 41 percent in the third quarter. Preliminary industry data for the fourth quarter show industry retail unit demand fell 48 percent. As we look at the outboard fiberglass boat retail unit demand on the same basis, industry demand fell 20 percent in the first quarter, 24 percent in the second quarter and 33 percent in the third quarter. Preliminary industry data for the fourth quarter show industry retail demand for outboard fiberglass boats fell 41 percent. Aluminum product demand based on final industry data was down 17 percent in the first quarter, 23 percent in the second quarter and 22 percent in the third quarter. Preliminary data for the fourth quarter show industry unit retail demand was down 30 percent.

In this market backdrop, our 2008 sales declined 17 percent across Brunswick, and our marine sales declined nearly 21 percent. In the fourth quarter, our sales declined 42 percent, and our marine sales declined 50 percent. These sales levels, and the resulting impact on earnings, are difficult to endure in the short term, but they are having a positive impact in our effort to reduce the dealer pipeline, which of course is important for our long-term success. During 2008, we reduced the dealer pipeline by 6,700 units, a 22 percent reduction. We ended the year with 34 and-a-half weeks of product in the pipeline, on a trailing 12 months retail basis, compared to 34 weeks at the end of 2007, which is a remarkable achievement given the dramatic retail declines. I would like to thank and commend our dealers for their aggressive inventory management during a very difficult 2008.

Earlier in 2008, we amended our agreement with GE related to our Brunswick Acceptance Corporation dealer floorplan financing joint venture, to extend the term of the venture to 2014. In the fourth quarter we reached agreement with GE on a revised covenant, and do not expect that any covenant will be an issue during the term of the agreement. The ability to obtain floorplan financing is important to us in our dealer network. As we see see lenders leave the marine floorplan market, we believe we are providing an important competitive advantage to our dealers.

As we discuss the health of our boat dealers, we should comment on Brunswick contingent obligations to repurchase a certain percentage of our boats sold to dealers through floorplan financing, whether through our BAC joint venture or other floorplan providers. Looking specifically at financing statistics, total domestic floorplan outstandings were down over 24 percent at year-end 2008 versus 2007. This is a function of the overall slowdown in marine markets, as well as our actions in 2008 to sell fewer boats to our dealers than they retail. The challenge our dealers face, however, is their inventory of boats more than 12 months in age, which comprised 40 percent of the domestic floorplan financing at the end of 2008 versus 20 percent at the end of 2007. In raw dollars, boats financed that are greater than one year of age increased by approximately $70 million versus this time last year. Aged product is an area of keen focus, and we are working closely with our dealers to get aged product retail sold. This is not a material issue for about half of our dealers, who have little or no product financed that is aged greater than 18 months.

As you are aware, the Company has obligations to repurchase inventory from floorplan lenders, in the event dealers default on their obligations. The maximum liability associated with these obligations at year-end is between $160 million and $170 million over a two-year period, if we had to purchase every boat covered by our repurchase obligations. Of course, our actual experience is expected to be significantly below this level. We actively work to manage this risk by closely monitoring the current status of our dealers, and taking actions to avert or mitigate losses. These actions include providing assistance on retail incentives, curtailing shipments of product, or redistributing product to other dealers.

Historically, the expenditures related to repurchases have been manageable, even during times of market stress. For 2008, we repurchased about $16 million of inventory related to these obligations, including slightly over $5 million related to Olympic Boats, which declared bankruptcy in the third quarter. A substantial portion of that inventory was successfully transitioned to other dealers prior to year end. As we work with our dealers, product financed that is less than 12 months old has declined significantly year-over-year. This decline is a direct result of the significant reduction in wholesale shipments in 2008. Of course, this means the risk of adding to the population of aged product is decreasing, and we will continue to manage wholesale shipments to keep dealer inventories in line. These are trying times for all boat dealers, but we believe that our dealer base is the strongest in the industry, backed up by the most stable and expansive financing program in the industry. These are powerful resources for Brunswick that provide a competitive advantage in these weak markets, and even more so in the recovery that will ensue.

The difficult economic conditions in which we are operating require that we aggressively manage our operations to reduce costs, to ensure our liquidity, and to position the Company to emerge from these economic conditions stronger than ever. To these ends, we have executed a wide-ranging and comprehensive set actions in 2008. During 2008, we achieved actual net fixed-cost reductions affecting both cost of sales and SG&A of approximately $160 million, not including amounts saved by not paying bonuses in 2008. In 2008, we reduced our total Company work force by 27 percent, and at our marine operations and corporate functions, we reduced our total work force by 40 percent. And with actions we have announced so far in 2009, this reduction will reach 46 percent in those portions of our Company. These actions are painful and disruptive for the individuals involved, and for our organization, but we have no choice but to size our work force to demand.

We closed eight boat plants, and mothballed another three. Our operating boat manufacturing footprint has been cut in half in 2007 and 2008, as we have moved from 28 plants down to 14. As a result, our boat manufacturing plants are now manufacturing common types of boats over multiple brands, rather than a single brand over multiple types of boats. Even after this footprint realignment, we believe we can increase production by nearly 100 percent from today's rates when markets recover. We reduced the number of models we manufacture, to better utilize our new footprint and to reduce complexity and attendant costs. We exited brands and product categories or segments with limited or no growth or profit potential. We exited or sold other non-strategic businesses or assets. We consolidated functions and removed layers of management. All of these actions taken together position Brunswick to be stronger when global economic conditions improve.

Before turning the call over to Peter, I want to mention the performance of our Fitness and Bowling & Billiards businesses. These businesses are important to Brunswick, and often get overlooked. These businesses contributed significant earnings and cash flow to Brunswick in 2008. Sales in our Fitness business were down 2 percent for the year, but were down 20 percent in the fourth quarter. The fourth quarter results reflect continued weakness in the consumer portion of the business, but were more impacted by a slowing in the commercial portion of the business, as clubs, schools and hotels throttled back spending for new equipment as the year ended. For 2008, our Bowling and Billiards sales were flat, but we did see an 8 percent decline in sales in the fourth quarter, as the Billiards business continued to experience significant declines, and our same center sales declined in the quarter, reflecting consumers' pessimism.

I will now turn the call over to Peter.

Thanks, Dusty.

I will begin by reviewing our cash flows in the quarter, and then provide more detail on some of the major considerations affecting our 2008 and 2009 financials. Cash declined by $25 million in the fourth quarter. Our cash flow was benefited in the quarter by approximately $33 million of proceeds from asset sales and business dispositions. However, this benefit was more than offset by cash restructuring charges of $43 million, and nearly $10 million in fees in connection with the amendment of our revolving credit agreement.

Now, as Dusty has explained, our objective is to exit 2009 with greater cash balances than year-end 2008, without incurring additional borrowings. Here are some of the significant data points that will be factors in our ability to achieve this goal. D&A is estimated to be about $155 million in 2009. We will reduce capital spending to approximately $60 million versus $102 million in 2008. Taxes will be a cash generator of about $67 million in 2009, primarily from an expected refund. The refund comes from carrying back our losses in 2008 to our '07 and '06 returns, which were years in which paid taxes.

Based on the current 2009 restructuring plans, we anticipate restructuring charges of about $50 million during the year, the majority of which will be cash. This compares to approximately $100 million of cash restructuring in 2008. Cash contributions to our defined benefit pension plan will increase from approximately $3 million in 2008 to between $25 and $30 million in '09. I will elaborate further on pensions in a moment. Finally, we expect to generate more that $100 million from working capital in '09, as we dial back production, and relieve inventories and collect receivables. Now, Brunswick uses cash in the first quarter, as our operations prepare for the marine selling season. And although we believe that sales will be muted this year, we nevertheless expect that the Company will consume cash during the first quarter of this year.

Turning now to the Company's defined benefit pension plans, which have recently become a more volatile factor in our earnings and in our cash planning. Entering 2008, our plans were nearly fully funded. At the end of the third quarter of 2008, despite reductions in global equity markets, the funding of our plans decreased only slightly. However, as you are aware, the fourth quarter brought two dynamics which led to a significant decline in our funding status. First, after rising through the close of Q3, the discount rate used to size our pension obligation declined to 6.25 percent, thereby increasing our liabilities, and second, equity markets took another material leg down in the fourth quarter, reducing the value of our assets.

The net result is that we exited 2008 with plans that were underfunded by about $433 million. The effect on our '09 P&L is considerable. Pension cost is estimated at nearly $90 million, versus $14 million in 2008. Cash contribution requirements are also expected to increase, but not to the same magnitude as expense. We are currently planning for contributions in the $25 million to $30 million range in '09, although a portion of these contributions could be deferred into 2010 if necessary. In 2008, we made contributions of approximately $3 million. I would note that our defined benefit salary plan has been closed to new entrants since 1999. This was a critical step in capping the growth of our liabilities. Growth in assets will be a function of the eventual uplift in equity markets, and our annual cash contributions to the fund.

Moving now to our tax provision. For 2008, Brunswick ended the year providing tax expense on an operating loss. This negative tax rate of 25 percent resulted from having to book a consolidated tax position of $155.9 million, despite the Company incurring a consolidated pretax loss of more than $632 million. Usually, you would expect to see a tax benefit on a loss which works to reduce the after-tax loss. However, as a result of having to set up a valuation allowance of $338 million against the Company's deferred tax assets, we reported a tax provision versus a tax benefit on the pretax loss. In other words, the valuation allowance booked in 2008 more than offset the tax benefit booked against our pretax loss.

The valuation allowance, you may recall, is required because we are in a three-year cumulative pretax loss position for 2006 to '08, resulting from our third quarter non-cash goodwill and intangible impairment charges. In this situation the Company is required to establish a valuation allowance against its deferred tax assets, because FAS 109 accounting does not permit us to anticipate future income to utilize these future tax deductions. The valuation allowance against our deferred tax assets is primarily a book earnings issue, and does not impact cash flow. As soon as the Company no longer has a cumulative three-year pretax loss, we will begin to see the reversal of the valuation allowance back into income.

Looking to 2009, however, we do expect to generate taxable losses. Therefore, we will book further valuation allowances against our deferred tax assets in this year, 2009. This will increase the Company's tax position, resulting in no tax benefit for 2009 pretax book losses. For 2009, our pretax loss will essentially be our after-tax loss, with the exception of potential state and foreign taxes having to be provided.

In conclusion, I would like to review the year-end balance sheet for a moment. The changes versus year-end 2007 were considerable, but consistent with the business environment and the accounting events that did occur in 2008. Receivables were reduced by nearly $128 million, primarily in our engine and fitness businesses. Net inventories dropped by $95 million, with the reduction about evenly split between the engine and boat businesses. Payables were $136 million lower, with the majority of the reduction again about evenly split between the engine and the boat segments.

Third, income tax assets dropped nearly $147 million, resulting from the FAS 109 valuation allowance; this was non-cash. The reduction of nearly $550 million in goodwill and other intangibles was a function of FAS 142 impairment accounting; again, non-cash. Investments were about $57 million lower, reflecting the sale of the Company's interests in its Japanese bowling joint venture, and a return of $20 million in equity from our marine financing joint venture. Accrued expenses decreased by about $161 million, as a result of reduced dealer allowances, product warranty, and Company incentive compensation. The approximately $315 million increase in long-term liabilities is primarily a function of revaluing our obligations, and finally, the more than $1.1 billion reduction in shareholders' equity resulted from the combination of goodwill intangible impairments, the tax valuation allowance, and the pension revaluation.

Looking back, it was quite a year. I will turn the call now back to Dusty to wrap it up.

Thanks, Peter.

We have given you our perspective on 2009 in our news release, and although we are very early in the new year and still have limited visibility in what is a very volatile marketplace, we nevertheless would like to share with you a few important facts. We are planning for revenues to be lower in 2009, with higher relative percentage decline occurring in the first half of the year. We're planning for our overall profitability as compared to 2008 to be negatively affected by these expected lower sales. In addition, certain factors Peter just reviewed with you, specifically pension expense, the resumption of variable compensation, and reduced production and wholesale shipments, will lower our earnings in '09. Partially offsetting these factors will be the full-year effect of cost restrictions implemented in '08, as well as further reductions implemented and planned for 2009. We believe our net fixed-cost reductions for 2009 will be nearly $200 million, in addition to the $160 million reductions we realized in 2008.

We are well prepared and positioned to continue to manage our businesses for cash, and we can exit 2009 with cash at or above the amount we reported at this year end. We will continue to carefully and periodically evaluate our overall re-sizing efforts as market conditions evolve, evaluate capital spending requirements and cost-saving opportunities, and explore additional opportunities to monetize non-core assets. And when this economic downturn subsides, we will be well positioned to compete and prosper, which will enable us to accomplish our ultimate goal of significantly improving shareholder value.

In closing, I would like to note that we make and sell products used in recreational activity, and our bowling retail business provides a recreational experience. We do these things very well, as evidence by our leading market share in all of our businesses. Even in today's economic conditions we want to lead product innovation, and continue to do so. As examples, our new Sea Ray 43 Sundancer and our Skyhook positioning system from our Cummins MerCruiser joint venture were recently named best-of-the-year products by leading industry publications. Consumer spending will return, and we intend to remain the market leader in any conditions.

Thank you, and we will be happy now to take your questions.

(Operator Instructions). We have Ed Aaron, RBC Capital Markets. Your line is open.

Thanks, good morning, guys. And congratulations for testing the absolute limits of my accounting knowledge.

I am surprised you could stay awake.

So, Dusty, if you assume that current levels of demand hold, just going forward, you are cutting a lot out of your business, but obviously it's like impossible to cut fast enough for what is happening out there. And there's a point at which you finally catch up, so to speak, and supply matches demand and back to that 1 to 1 replenishment level. If current demand holds, when do you perceive that that would happen?

Current demand holds -- first, we are not planning on current demand holding yet. We believe demand will reduce some in 2009, especially in the first half.

I meant the current run rate, so if you take what the last couple of months has been and you sort of apply the seasonality to it, is that -- because obviously, the first half of the year it is going to be considerably down. But, I mean, from kind of current levels, are you assuming that it gets worse from where it is the last couple of months?

Let me -- I think I am probably still not understanding your question correctly. But let me see if I am heading in the right direction. Our goal, even in a down market in 2009, is to exit 2009 so that we have pipelines much closer to what we would view as ideal. And, frankly, our plan is to get them to ideal in most of our businesses. If that were to occur then, and the market were to flatten, we are going to need to make significant numbers of -- have a significant increase in the number boats and engines that we make, Ed. Actually quite significant. So we made the decision in 2009 to continue to produce at levels that are dramatically lower than even the sort of retail levels you saw in the fourth quarter. And in the general thinking that we're at, we might need to, if the market were to flatten, increase production by way north of 50 percent quickly, in order to get on an even keel basis. Is that what you are looking for?

Yes, that is very helpful. But do you think that the -- on your current outlook, that your sales in the second half of the year would be back into positive territory on a year-over-year basis? Because that is when you start the anniversary of all the furloughs.

You know, Ed, they could be, but we are not looking much past the first half right now, and want to make sure we get our dealers positioned as best we can for what we think is going to be a difficult selling season.

Understandable. Then I wanted maybe to talk a little bit more about the floorplan financing environment. We have been hearing a lot of talk about more the smaller builders and smaller dealers who are struggling with that, and you have this long-term relationship with GE which seems to be an asset. Do you expect that this is ultimately going to really provide a meaningful boost to your overall market share? And is there any scenario out there -- I know you have a deal with them through 2014, but is there any scenario that you can envision where, for one reason or another, GE basically exits the space? Just because that would be so devastating to the overall industry. I'm just trying to figure out if there is any, even remote, possibility that it would happen?

I can't read GE's mind, and can't tell you that there is not any scenario. All I can tell you is what our deal is with them and what our agreement is with them, and our judgment is, certainly in our relationship they are committed to working with us, committed to moving forward and committed to providing funds. In terms of whether we believe the arrangement can be a long-term competitive advantage, the answer is yes. In the current lending environment, although I am actually quite hopeful as we watch economic conditions unfold and see banks looking for, or other lending institutions looking for a good space to go into, we will reach a point where, for competitive reasons some or -- one or more lenders will say, this market is beginning to improve, there is a opportunity for us to move in, in order to compete with GE, and they will do. But right now, certainly GE owns a very large percentage of the market, and that is why it is important to us that in our agreement, we feel they are committed to go forward with us.

Great. Thanks for taking my question.

Thank you. Next, Hayley Wolff, Rochdale Securities. Your line is open.

Hi, guys. A couple of quick questions. I am on the road right now, it is hard to listen. The repurchase obligation that you guys talked about, is there any sense that, you know, if they are mostly continuing along with model year '07, do they begin to roll off as you get over the next four months? Your obligations would be substantially lower than the first earnings report?

Hayley, yes, there will be some rolling off, but I do not believe our total obligation would get substantially lower in the first quarter.

Is there a period -- what if I rolled that into the second quarter?

No, because I think the amount of product out there that far out, is relatively small. It is stuff that is more in-between current and that that is taking up a lot of the floor planning.

Now, in terms of cash usage in the first quarter, would you moderately tap into your revolver in the first quarter, or do you see yourself as being self-funding?

We are not planning to tap in anytime during the year.

Okay. Then the last question, kind of touching on what Ed talked about. Given that if we do get -- we expect to see declines in the first half, you know, who knows what happens the second half, but is there a sense that there is so little '08 inventory out there that anything that approaches stabilization, the dealers really need to start to order, because their products will be so non-current at that point?

Well, there's -- you've hit on a very good point. There is substantially less current product in the pipeline right now than is normal. I think as the dealers get the work off the older, yes, if the market flattens or does anything, there is going to need to be a substantial refill. And it is going to be interesting, because it's going to be a real test for us, our supply chain system, in order to meet what could be in demand when the market finally levels out.

Now, will you keep your model year changeover in September or October, or will you roll it back to July?

Right now, it is currently July, and I am not ready to say right now, Hayley, what is the best thing to do on model year rollover.

Okay. Thanks, guys.

You're welcome.

Next is Tim Conder, Wachovia-Wells Fargo. Your line is open.

Thank you. Dusty, just to follow on the rolloff there, can you just remind us, is there something regarding an 18-month provision where your repurchase obligation if the dealer goes bankrupt, is that the rolloff point of the 18 months?

Well, no, our obligations go beyond 18 months, but they are quite low once we get past that point.

And Tim, we are capped at a certain level, and the contingent liability number that Dusty set forth is the result of that cap.

Okay. Peter. And by the way, Peter, thank you for going through all that, all the detail is very helpful, as both of you have laid out.

Well, it seemed to bore Dusty, so I'm glad. (Laughter)

No, it is helpful, thank you. Are you basically implying, from a modeling perspective, roughly a 0 percent effective tax rate? Did I understand you right, or did I misunderstand something there, Peter?

We will actually have a modest tax provision, Tim, because we make money in some foreign jurisdictions, and we'll have some state taxes. At the Federal level, it overly simplifies it, but every dollar we lose, the valuation allowance would put up against it, so it will net to zero on the tax line. We expect a modest tax provision, as opposed to what you ordinarily expect, a tax benefit.

Okay. And then you talked essentially monetizing some other things, you gentlemen did in the commentary. Can you give us an update on sale lease back transaction things you were exploring regarding the recreational centers and the headquarters.

We continue, Tim, to explore sale lease backs of appropriate bowling centers, and we are going to decide whether to do that or not do that on the basis of whether it is a wise financing decision. We don't think it is money that we need for liquidity purposes, so we are only going to do it if we feel it is an appropriate inclusion in our overall capital structure, and the same answer for the office building. And, you know, the market is so tumultuous out there that we're going to have to look hard before we do either.

And gentlemen, continuing the line of questioning of coming through the dark tunnel and starting to see some potential of some positive rays at some point here, Dusty in your commentary regarding the less than 12-month inventory, it would seem then that there is not much of your new leading type of product in the channel at all, and that would imply the Zeus, the Axius, those types of products. On those products in particular, which can be a little bit better margins for you, how is your ability to ramp up when the need arises on those products in particular?

First, let me give a little bit of perspective. Even though our product, our newer product is down in terms of the amount being financed, a much, much higher percentage of that is Zeus, Axius, and other new technology product than would be normal technology. That's number one.

Number two, we are quite comfortable that we will be able to ramp up and meet demand, and believe as demand comes up that we will need to be right there with all of this new product and new technology, because it will be something that consumers will be looking for, and that's what we are planning for. So Tim, as an example, in our boat businesses, we are spending lots and lots of time right now, even with our limited capital spending, focused on getting the new technology in as much of our product line-up as we can, and any new product that we are doing, and we are continuing to develop new product, will all have the new technology in it also, where it is applicable.

Okay. So you are saying that what is actually in the channel, there is not that much because of the open to buy flooring being clogged up with the -- somewhat the longer-aging product?

Well, I am actually saying that the percentage is much higher of new product and new technology than old technology, because the consumers are looking for that and the dealers are doing a good job of selling it.

Okay. That's good. Then this is probably a very difficult question to answer, if you can at all. By your estimates, what would you think at this point or maybe by the middle of the year -- how much of your competitors are effectively out of commission and may not ever come back? And, therefore, we all know that the overall market has shrunk, and will probably not get back to where it was even in the last ten years, but I would think that your piece of the pie as the market does recover, with some of the competitive situation taken care of by this downturn, so to speak, that your opportunity here is very substantial?

Tim, don't have any idea, number one. Number two, though, it is worth commenting that while there are boat businesses that are competitors of our boat businesses, they are also customers of our Mercury business, and we treat them as so, and want to help them succeed.

Okay, that is fair. Thank you, gentlemen.

You're welcome, Tim.

Thank you. Next, John Harlow, Barrow Hanley. Your line is open.

Hi, everybody, how are you doing?

Hey, John.

In your earnings release, you highlighted the reversal of variable compensation accruals, but there was no discussion of that in the verbal part of your conference call, and I am sort of battled as to what it is and how it may affect the operating income numbers by line of business? Where it is in the income statement?

What it is, John, is we made the decision not to pay any variable compensation in 2008, for 2008 performance, and that is a 2009 cash item. But of course it is an earnings item in 2008. And what we have tried to call out is, I think we even gave in the press release, John, the EPS impact of that.

You did?

Which is $0.56. And then what we are building into our plan for 2009 is a return of variable compensation if we can hit all of our operating targets, and if we generate sufficient cash. What we were, again, attempting to make sure that everyone knew is there was a $0.56 benefit in 2008 that will not be that benefit, perhaps, in 2009.

What is the pretax number?

We are looking quickly.

Okay.

Yes. 80.

$80 million?

Yes.

And if you were trying to see what the operating performance was by a line of business, excluding that? If you allocate it across a line of business, or is all in --

Yes, how is it spread?

Well, it is a spread across each of our segments, depending upon those segments' variable comp and the reversal that occurred to that variable comp. So all of the segments in this fourth quarter are benefited by that from the P&L point of view.

And in order to help you as to how to divide the $0.56, I think that's what you are looking for.

Yes, to take the $80 million and kind of go across the line of business, and that will give me and others the ability to judge your performance in terms of cost-cutting, which on its -- before the $80 million, it is pretty impressive, and I'm sure it would be afterwards, but I --

Well, it is $160 million, not including the $80 million in this year.

Okay. I tell you what, I would like to call back and have somebody walk me through that. But I have one more question. Can I ask it now?

Of course.

When I look at the 12-month cash flow statement and compare it to nine-month, under income taxes and other there is a big swing in the number, which implies something occurred in the fourth quarter that is pretty large. I am baffled at that. You guys have done a pretty good job of baffling me and Ed on the accounting.

Well, we have endeavored, John, to --

I know you did it on purpose.

-- to take the confusing accounting and make it simple. But the swing is as a result of applying this valuation allowance, which comes from FAS 109, to our results in the fourth quarter. And so it's --

Is that as big a source of cash as it implies, looking at the numbers side-by-side?

No. The whole valuation allowance, FAS 109, situation has nothing to do with cash or tax book cash.

Okay. Let me ask you one other small question. If the Government were to change the carry back from two years to five years, what would that do for Brunswick in terms of bringing cash on to the balance sheet?

That would enable us to take losses incurred in this year, '09, and carry them back to another -- the way the legislation is currently drafted, another three years, which would result in a cash tax refund in the year 2010.

That may approach what number?

It is very hard to say at this point, because it's dependent on our '09 performance, but it could be as much as $70 million.

$70 million, okay. Thanks a lot.

Next we have Justin Boisseau, Gates Capital Management. Your line is open.

Yes, I guess to follow up the earlier caller, I have a similar question. Do you happen to have the allocation of the $81.2 million SG&A add-back for the fourth quarter, how it is allocated among the segments?

It will be in our -- you will be able to see it in our 10-K.

Okay. And then next question, again on that tax item, I think you said -- understanding it is rough numbers, if the carry back were changed to five years, did I understand you to say it would be about a $70 million benefit?

Yes.

And that is in addition to -- I think you said a $67 million benefit you are already expecting in 12/09?

Yes. That benefit that we referred to in our commentary is for a tax refund that has already been filed, and that we expect to receive in the first half of the year '09. And that carries our losses back two years. If this legislation goes through as planned, we could carry back another three years, and we would get the cash benefit of that in 2010.

Got it. And finally are there -- or how much would you estimate in terms of dollars do you have of noncore assets remaining to be sold?

I wouldn't want to comment on that. If you are thinking of -- from a proceeds perspective, it will not be dramatic. You know, it will be in double digits but it is not going to be a dramatic number.

Thanks.

You're welcome.

We are showing no further questions at this time.

I thank everyone for joining us today. Thanks for working through with us what are actually quite difficult accounting issues. I hope we've provided you with the best understanding that we possibly could of a complicated set of numbers, so that you can build your models and understand how we are performing. Thanks, and with that, we will sign off.